Last updated: December 27th, 2019
For the past few years, I’ve focused on building 100% digital businesses.
Affiliate websites have always been my specialty.
But I always felt like something was missing…
I needed to know what launching a physical e-commerce product business was like.
After spending 6+ months working on a physical product business with great results, I can finally do a raw breakdown of the differences between these two business models.
Let’s explore the pros and cons of physical product businesses vs. 100% digital businesses based on real-life experience.
What I learned starting my first physical product business
There’s a certain kind of gratification that comes with seeing a physical product in reality that you originally imagined in your own mind.
Bringing a physical e-commerce product to market is basically a test of your own willpower.
If you can envision a product that will genuinely help people in some way and you can make your product a reality, you will be VERY impressed with your own creative abilities.
Cash flow comes much quicker because physical products are easy to sell
Assuming you have something of genuine value to sell, you can sell your first physical product within a matter of weeks or even days in most cases.
Yes, it can happen that fast, because physical products lead to a very straightforward transaction most of the time.
For example, you can create your own skin cream, list it on Etsy, spend $50 on Etsy’s advertising platform, and have your first sale in a matter of days.
Physical products don’t have to be complicated.
They just have to work and help people achieve the result they’re looking for.
Let’s make this even simpler.
Could you go down to your local thrift shop, buy something of value, and then sell that same item on eBay for a profit?
If so, congratulations, because this means you can also sell your own “private label” physical e-commerce products.
Operating costs are way higher
Depending on the type of physical product business you build, costs can add up very quickly:
- Shipping costs
- Product labels
- Shipping software
- Email software
This should be obvious, but if you’re doing a physical product business, make sure that your cash inflows stay well above your cash outflows.
While this math equation sounds incredibly simple (cash in vs. cash out) many e-commerce entrepreneurs still struggle because of all the unexpected operating costs involved with physical products.
What I learned starting 100% digital companies (no touching physical products whatsoever)
Before launching a physical product business, I spent about 5+ years working exclusively with 100% digital businesses.
I’ve always focused on affiliate websites and internet marketing for the most part.
In the past, my only rule was that I didn’t want to touch physical products (I’ve since broken this rule).
Here’s what I know about starting 100% digital businesses:
Digital businesses are hyper-scalable
Anyone in the world can start a website that reaches millions of people.
This is the advantage of starting a 100% digital business.
Websites, software and digital education programs are all very scalable.
Since you aren’t constantly packaging and shipping physical products, you can just focus on building a great website or software.
Digital businesses are easier to scale because there are such few variables involved.
For example, your entire digital business model could literally come down to:
- Web hosting ($10/month)
- Domain name registration ($10/year)
- Email software ($10/month)
About $20/month is all it takes to get started.
(You can check out Online Heaven’s resources section to see the tools I personally use and recommend).
It takes longer to cash flow digital businesses
In the above section we mentioned that anyone in the world can start a website.
While it’s great that anyone in the world can start a website, this is actually a double-edged sword.
Since anyone in the world can launch a website or digital product business, it’s going to take people a little bit longer to trust you.
People just want to make sure you’re legit. That’s all.
In my experience, it takes about 9 months for an affiliate website to really take off and generate a livable income (using purely SEO).
However if you’re buying ads you can generate cash flow with a digital business literally the same day.
So the time-to-cash-flow factor really depends on your level experience.
If you’re committed, results can happen very quickly.
If you’re brand new to internet marketing, expect a volatile 3 to 12 month learning curve.
Once you hit exponential growth, digital product businesses are highly-addictive
Digital product businesses are highly-addictive because once you get some exponential growth, you know you’ve won the game.
When your main operating costs are web hosting and ad spend (which is pretty much the case in internet marketing) it’s easy to focus entirely on scaling the two things that matter most:
Traffic + Offer = Sale
Digital product businesses really help you max out the traffic + offer formula which leads to fast and addictive revenue growth.
Which is best? A physical product business or a digital business? (Or how about a combination of both?)
If you’ve been paying attention to the internet marketing industry lately, you might have noticed more entrepreneurs selling a combination of physical products and digital products.
This has been done very well with the ever-popular free + shipping book offer.
If you don’t know what I’m talking about here, thousands of entrepreneurs are giving away “free” copies of their books as long as the buyer covers the shipping costs.
A buyer ends up paying around $7 to cover the shipping costs, and they get a free book in return.
This is nothing new.
Old school entrepreneurs have been using infomercials and TV commercials to promote “free” products for decades.
This game is mostly about selling something of great value, even if it only costs the buyer a few dollars, because this opens you up to long-term relationships with buyers.
And building long-term relationships with buyers leads to successful businesses.
This is why good entrepreneurs are willing to lose money in the short-term to acquire quality, long-term paying customers.
Make sure to study customer lifetime value (customer LTV) if you haven’t done so already.
What about service businesses?
My very first company was a mobile app copywriting agency.
I think service businesses are incredible.
Service businesses deserve their own category separate from physical product businesses and 100% digital businesses.
This is because service businesses vary widely, as services can be performed entirely online, offline, or via a combination of both.
Examples of service businesses include:
- Copywriting services
- Business cleaning services
- IT development services (like web server maintenance)
- Website building services
- Home renovation services
If I were starting from scratch today, I’d focus all of my attention and energy on providing local businesses with a valuable service.
In closing, I’m happy that I can offer a raw comparison of the differences between physical product businesses, digital businesses, and service businesses, because I’ve literally done them all.
I like each of these business models and recommend that you get started with any one of them if you haven’t done so already.
The business model you choose doesn’t matter nearly as much as the people you serve.
If you can generate positive cash-flow while selling products to a high-quality customer base you’ll probably learn to love that particular business.
It’s always about the people you’re serving. People are everything.
The key is to get in the game as soon as possible, start selling anything of value and changing people’s lives for the best…and you will get positive results sooner rather than later.
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